Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to determine how much money is available for a monthly home loan payment after all your other monthly debts are fulfilled.
How to figure the qualifying ratio
In general, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.
BeneGroup, Inc. can walk you through the pitfalls of getting a mortgage. Give us a call at 4083956018.